View profile

The music + media micropayment map.

Happy Tuesday! I'm writing this issue from LA, where I'll be doing a Pitch Practice mentor session wi
The music + media micropayment map.
By Cherie Hu • Issue #49 • View online
Happy Tuesday!
I’m writing this issue from LA, where I’ll be doing a Pitch Practice mentor session with Techstars Music on Thursday. After covering the program for Billboard last year, I’m thrilled to be contributing to its members’ growth and development even in a small way from behind the scenes this time around.
I’ll be sharing my takeaways from the experience exclusively to my Patreon subscriber base, which you can join for as little as $1 a month! A special thank-you to Seth Combs, Ross Michaels and Rob Campanell for joining the $40/month tier in recent weeks. :)
If you’re a new subscriber, thanks so much for following my work! You can feel free to reply to this email with any comments or questions, and it’ll go straight to me.
Now, onto today’s essay…

The music + media micropayment map
This week’s topic was decided with the help of $3+/month Patreon members. Thanks to everyone for your input!
The term “micropayment” is gaining an increasing amount of buzz as a potential new frontier of revenue and fan engagement for artists.
Funnily enough, the buzzword serves the incentives of both optimists and cynics in the music business. The former, thrilled by the newfound revenue growth that streaming has brought to the industry, are looking to replicate and sustain that growth across the wider music ecosystem with more flexible pricing for consumers. The latter, fearful of streaming services’ paltry and declining royalty rates, are hoping that micropayments will help generate more, higher-margin value for artists elsewhere.
Despite this bipartisan support, there is little public research available about the diverse types of micropayment opportunities in music—and about what actually motivates fans to pay in smaller increments versus in larger, bulk-oriented amounts, particularly for transactions that don’t result in owning a tangible product. There are also several concrete examples of micropayments in action from outside industries, including video games, news publishing and basketball, that warrant more holistic study.
For this newsletter, I decided to draw a map that addresses the above gaps and attempts to answer the following question: How can music and media companies use micropayments to unlock value from fans across the entire lifecycle of a given product or creative process?
Here is my result:
There’s a lot going on in this map, and I’ll break down each section in detail in the following paragraphs.
Some preliminary notes about the legend:
  • I divided the map into two umbrella groups: micropayments that monetize hard content and assets (labeled “A” on top), versus those that monetize soft relationships and sentiments (labeled “B”).
  • Companies marked with an asterisk enable micropayments primarily through passive payouts on the backend, rather than active transactions issued by the end user.
  • The slash symbol indicates startups that don’t actually engage in monetary micropayments yet—but have a strong possibility of doing so because their core product already asks fans to contribute small amounts of data, rather than money, in exchange for rewards.
  • The “PP” symbol refers to prepaid models for micropayments—whereby fans purchase a bulk number of virtual “currencies” or “gifts” within a given app for a fixed upfront price, then send these items individually to artists who can cash them out later for fiat currency.
You can also imagine this map as an ongoing cycle—i.e. once you get to the stage of monetizing loyalty, you can feed that back into demand on the left side and then go through the map again for any new product or campaign.
WTF is a micropayment anyway?
One downside of micropayments’ early, experimental nature is that there’s no standardization around what that word actually means.
PayPal defines a micropayment as anything under $10 in value, in part because the company sets a dedicated “micropayment fee rate” —i.e. 5% + 5¢ per transaction, versus the usual 2.9% + 30¢—for merchants who process a high volume of <$10 transactions.
For this newsletter, I will aim a bit lower and define a micropayment as any online transaction ≤ $1.
In other words, the purchase of a $0.99 single on iTunes is a micropayment, but that of a longer album or EP is not (unless the whole EP costs $0.99). A $1 donation to an artist during a livestream is a micropayment; a $30 purchase of a Chance 3 cap through the rapper’s online store is not.
In addition, with respect to the actual flow of money, the majority of examples I include on my map involve micropayments from fans -> artists, rather than from artists -> fans or from fans -> other fans. The one exception is the Curation category, as I discuss in detail further below.
A note about blockchain…
Considering that “micropayment” is already a teeming buzzword in and of itself, you may be amused to find that it’s virtually impossible to Google-search “micropayment” without also finding the words “blockchain,” “Bitcoin” and/or “cryptocurrency” on the first page of results.
One of the biggest reasons why companies aren’t investing more heavily in micropayments yet boils down to two words: processing fees. As Business Insider found in a 2017 report, many merchants cannot afford micropayments because the fees for credit-card transactions “are often high enough that they pare down or eliminate almost all potential for seller profit.”
Blockchain companies are gaining significant ground in the financial-services sector because of their potential to reduce these fees significantly, and subsequently disintermediate incumbent institutions—saving a projected $15 billion to $20 billion annually by 2022, according to Santander.
Hence, it’s not totally unfounded to claim that blockchain will become an integral component of future music-micropayment platforms. Some experts even claim that a scalable micropayment platform for music can be funded by all the world’s active listeners contributing just 10¢ a month.
To avoid scope creep, I won’t be discussing any more technical details of blockchain in this newsletter—but it’s an important, foundational trend to keep in mind.
Now, let’s dive into each category on the map:
1. Micropayments for demand
As visualized on the map, this category of micropayments normally takes place before a given piece of content is created.
Fans transact in this category to voice their demand for a certain type of content that does not yet exist, leveraging a built-in voting and ranking system to maximize the chances of that demand becoming a reality.
Interestingly, the majority of music-related examples in this category come from the live sector, but fall short in that they ask fans for data rather than actual money.
Platforms like WeDemand and MyMusicTaste enable fans to request that an artist or band stop in their city on tour. Set The Set (now under the digital-marketing company Harmony) enables artists to crowdsource setlist ideas from their fans. Spark DJ brings a Set The Set-type interface into bars and venues, enabling patrons to vote on which song should come up next over the loudspeakers; voting regularly on the most popular songs over time allows patrons to rack up points that can then be redeemed for food, drinks and other perks at participating venues.
As with many other categories on the map, the gaming industry seems to be more proactive than music in experimenting with monetary micropayments tied to demand.
For instance, YC-backed startup Camelot allows viewers to place monetary “bounties” on their favorite gamers, paying for what they want to see in a given livestream—for instance, winning a game without any extra armor or weapons, or adding a heartbeat monitor to the screen display.
The mechanics are like a self-organized Kickstarter, in that fans crowdfund for the outcomes that they themselves want; to protect streamers’ privacy and autonomy, fans pay for bounties upfront and are refunded if the streamer declines their request.
As more and more artists embrace Twitch as a fan-engagement platform, they could also potentially benefit from tools like Camelot to generate incremental revenue from real-time demand.
A potential case study: DJ-producers Anna Lunoe and TOKiMONSTA recently partnered up on an episode of Red Bull’s Twitch show Remix Lab, which invites producers to remix songs in real time while incorporating live feedback and ideas from viewers.
Throughout the stream, fans were using the chat forum to request specific types of samples, instruments and chord changes with which they wanted TOKiMONSTA to experiment. The Red Bull Twitch account had to field those requests in a manual, somewhat unstructured way—less “crowdsourcing,” and more flowing through a continuous influx of uncoordinated comments. Future sessions of Remix Lab could use a tool like Camelot to give a more formal, streamlined structure to this process of co-creation and collaboration with fans, while opening up an additional revenue source for all stakeholders involved.
2. Micropayments for process
Over the last year, I’ve written a handful of articles arguing that artists and rights holders will increasingly differentiate themselves not just by their own, singular content or brand image, but rather by their “creative ecology"—namely the extent to which their unique ecosystem of creative "ingredients” is available to third parties to share and manipulate autonomously.
In part because the average per-stream rates on recorded music are so low, a growing number of artists are now packaging and selling their creative process as a product in its own right, in an attempt to strengthen their moat against competitors.
Accordingly, fans in the Process micropayment category transact for access to an artist’s process and “secret sauce”—often for the purpose of coopting that process in their own creative endeavors.
From the artist’s perspective, this could mean selling stems, loops and samples instead of finished, fleshed-out recordings (Splice, Sounds.com, LANDR, Tracklib, etc.), or offering online tutorials for an instrument, DAW or other musical tool or skill of your choice. Remix clearance and monetization platform Dubset enables these transactions more passively, as it runs on a Content ID-type model rather than an active transactional model on the part of the remixer.
To date, however, few of the companies on the map under this category operate as true micropayment platforms, because their products are priced at greater than $1 and/or do not enable users to pay artists directly (e.g. Tracklib licenses start at $50; Splice Sounds and Sounds.com are both structured as monthly subscriptions that pay out content owners on a rev-share basis). Closing this gap will likely require streamlining both the technology and policy behind creative attribution at large, a difficult but surmountable feat that blockchain companies like Po.et are actively working on today.
3. Micropayments for access
While somewhat similar to the Demand category, the Access category comes after fans already have knowledge of the content they are going to see, rather than before.
Fans transact in this category to gain access to a single, smaller unit of content, often as a cheaper alternative to purchasing larger bundles of said units.
Outside of music, the most widely-publicized examples of access-driven micropayments come from journalism and sports.
In journalism, startups such as Blendle and Agate aggregate individual, “premium” articles from multiple news sources, then make each of them available for readers to purchase for a price determined by the original publisher (averaging around $0.30 to $0.50 apiece). As indicated on the micropayment map, Agate adopts a prepaid model in that customers can deposit bulk sums into a branded “wallet” for use on a longer string of articles over time.
Access-driven media micropayments are not just limited to aggregators; a select number of individual publications have implemented the model as well. For instance, since 2015, the Winnipeg Free Press has been testing a system that charges readers 27¢ to access each story, as an alternative to paying the standard ~US$13.50/month price for a subscription.
While the newspaper reportedly did not hit its early revenue projections for micropayments, execs still view the tier as a valuable sales funnel, with 15% of “micro-payers” converting to full digital subscribers—a significant improvement over the standard single-digit conversion rate for the wider news industry.
There aren’t that many parallel examples of this dynamic in music, aside from digital downloads of individual singles (which declined by 28.5% in the U.S. last year, and by 21.2% globally). DJ Sam Feldt’s startup Fangage does allow artists to offer exclusive content and merch to fans in exchange for email addresses, phone numbers and other contact info—but as depicted on the map, this relies primarily on transacting with data, rather than with actual money.
In sports, most access-driven micropayments are connected to some form of real-time engagement with a game or tournament.
For instance, Twitter—already a notable livestreaming partner to major franchises such as the NFL, MLB, MLS and even esports organization OWL—was considering integrating micropayments into its app as early as December 2017, for use cases such as paying a small fee to watch games in five- to ten-minute increments.
Similarly, the NBA now has quarter-by-quarter pay-per-view pricing on its League Pass TV service—allowing fans to purchase out-of-market games (i.e. those not broadcasted in their local market) for $1.99 to watch the fourth quarter onward, $2.99 for the third quarter onward and $4.99 for the second quarter onward. There remains an opportunity here to experiment with dynamic pricing based on the state of a given matchup.
It’s difficult to translate the NBA’s dynamics to the music industry, whose growth doesn’t rely as much on competitions or events that unfold in real time. But as more and more music experiences become “gamified” (see: Marshmello’s Fortnite concert, Wiz Khalifa’s Weed Farm, Netflix’s choose-your-own-soundtrack paradigm for Bandersnatch), it may become more natural to bring in micropayments for access to different kinds of characters, levels, skills, customizations and other features during this real-time “play.”
4. Micropayments for curation
Money flows differently in the Curation category from nearly all the others on the map, in that curators, not artists, become the primary recipients of a given micropayment. (Of course, artists can take on the role of curators themselves and benefit from this category as well.)
Fans transact in this category to reward what they think is the “best” content, and beneficiaries are paid for curating the best content for the best audience, as determined by crowdsourced activity and deliberation.
The small handful of music- and media-related examples in this category all rely on blockchain.
Last summer, blockchain-based music-streaming platform Choon launched “Monetized Playlists”—an affiliate-commission model that gives users monetary rewards for featuring artists on their own playlists, based on an opt-in revenue-share rate of 0% to 100% determined by each individual artist. For instance, the track below has its rev-share rate for playlist adds set at 50%:
Source: https://choon.co/tracks/0_y9t348hm3/twisted-soul/
Source: https://choon.co/tracks/0_y9t348hm3/twisted-soul/
Beyond music, companies like Steem are trying to build an alternative to Facebook and other incumbent platforms by integrating cryptocurrency into the blogging and newsfeed experience, rewarding users who post and curate the best content as determined by other users’ likes, upvotes and comments.
With both Steem and Choon, there is an element of trust that goes into determining whether a given user will receive a micropayment—i.e. users are more likely to listen to an editorial playlist if they trust the curator, and are more like to engage with a social-media post from a source they find trustworthy and credible.
5. Micropayments for consumption
Unlike all of the other categories, I imagine this one to be 100% passive. Fans in this category do not actively transact from their own wallets to pay artists in exchange for consuming their work (that falls under Demand or Access); rather, a platform is tasked with paying artists on the backend in reaction to fans’ consumption.
This is also kind of a trick category, because if we’re being true to the definition of a micropayment, it technically doesn’t exist.
I think the typical layperson who doesn’t work in the music industry will likely understand streaming as a passive micropayment. It’s easy to imagine someone hearing the rhetoric around “per-stream rates” and thinking that an artist or rights holder actually gets paid $0.005 to $0.007 immediately every time a listener streams their catalog, with those tiny payments growing cumulatively over time.
This is a faulty illustration because no rights holder in recorded music—not artists, not even major labels—is actually getting paid for streams on a daily basis, let alone on a per-stream basis. You may see headlines claiming that Universal Music Group beat investor expectations for last quarter by generating “close to $10 million per day” from streaming—but that daily number is just an average, and does not exist in real life as a daily amount that Spotify and other services are paying UMG.
A handful of blockchain-oriented startups like Revelator and Paperchain are working on tech solutions that will enable daily, rather than monthly or quarterly, payouts to artists and rights holders, using predictive analytics. If all goes will, this is the closest we can get to executing on actual, passive micropayments on consumption—and opening up capital in this way can do wonders for artists and label teams looking for more transparency around how much money they actually have to invest in content or campaigns in the short term.
6. Micropayments for loyalty
The Loyalty category accounts for the most lucrative source of micropayments for artists today.
Fans transact in this category to express their loyalty and devotion to a given artist or personality, regardless of whether any tangible content is exchanged as a result of the transaction.
The most widely-publicized examples in this category run on a prepaid model using a proprietary virtual currency. Tencent Music makes over 70% of its revenue from “virtual gifts” and other “social entertainment services.” Twitch users can purchase in-app “Bits,” WAV has “Beats” and “Diamonds” and YouNow has “Coins” and “Bars.” The latter two companies enable fans to earn said currency through active participation on the sites over time, in addition to shelling money directly of their own wallets if they so please.
Several artists have spoken out publicly about the importance of loyalty-driven micropayments in sustaining their careers. Some Twitch channels take in as much as $2,500 in Bit donations per month; Emma McGann, an artist whom I interviewed at the DIY Musician Conference in Valencia, makes 90% of her income from fan donations and subscriptions on YouNow, with “everything else” (Spotify, YouTube, Patreon, PRS payouts, etc.) accounting for the remaining 10%.
In contrast, the media and online publishing industry tends to go with more of a “pay-as-you-go” model. The likes of Ko-fi, Buy Me A Coffee, Flattr and Donate Bot enable people to tip writers and other creators simply as a gesture of appreciation for their work, without any need to deposit money into a virtual wallet for later use. I put these platforms in a separate category from the aforementioned example with the Winnipeg Free Press because loyalty-driven transactions are not tied to any kind of paywall, and usually take place after a user has finished reading a news article.
The opportunities for loyalty-driven micropayments in music certainly don’t come without immense challenges.
One of the most pressing problems is around licensing: aside from independent/DIY artists and personalities, rights holders are largely ostracized from receiving loyalty-driven micropayments because few of the category’s largest platforms have secured the proper licensing. For instance, Tencent Music’s karaoke apps remain largely unlicensed (although I know there are conversations happening right now behind closed doors to change that), and Twitch is currently not paying any rights holders for music played in the background during livestreams, which is when most fan donations take place.
There’s also a more cultural and philosophical question about the future of loyalty-driven micropayments, that goes all the way back to my point beginning of this essay about how the model serves both optimists and cynics: What happens to recorded music, and to artists’ careers, if the most lucrative form consumer engagement ends up not being tied to the actual content?
The institutional “Music Business” has always been as personality-driven as it is content-driven, and micropayments will likely exacerbate the importance of personalities even further.
Cynics will point to this trend as indicative of the music industry’s demise, and of the inevitable demand for artists to turn into content farmers to the point of burnout. Optimists will argue that shifting energy away from just making hit songs with short shelf lives—and more toward sustaining fan loyalty and engagement in the long term, regardless of whether a new hit song or album is around—will open up space for artists and fans to be more human, and for the industry to treat them as such.
My writing around the web
Why The Music Industry Needs The Video Gaming Industry’s Help To Scale Virtual Concerts
Good reads
Audio Creator Remuneration: DIY Artists Need 12.8 More Streams and Major Label Artists Need 91 More Streams to Earn the Same As Podcast Creators
Did you enjoy this issue?
Cherie Hu

*PLEASE SUBSCRIBE ON MAILCHIMP AND NOT HERE: https://mailchi.mp/9ab07d2b7dc4/waterandmusic*

If you don't want these updates anymore, please unsubscribe here.
If you were forwarded this newsletter and you like it, you can subscribe here.
Powered by Revue